The IRS Expanded Automatic Penalty Relief. Forms 5471 and 5472 May Be Left Out.

The IRS recently made an important change to its penalty relief program.

Its new Automatic Exemption from Penalty, or AEP, can automatically prevent certain failure-to-file, failure-to-pay, and failure-to-deposit penalties when a taxpayer has a strong compliance history. Eligible taxpayers generally do not need to call the IRS or separately request relief.

That is good news.

But founders with international filings should pay attention to what the new program does not cover.

Forms 5471 and 5472 are outside the return series eligible for AEP. The IRS also specifically excludes information reporting dependent on another filing from the new automatic relief.

That distinction matters because under existing IRS procedures, some systemically assessed Form 5471 and Form 5472 penalties have had a potential First Time Abate-based path to relief when the related income tax return qualified.

With First Time Abate being replaced, the future of that path is unclear.

01AEP is narrower than “automatic penalty relief” sounds

AEP applies beginning with eligible 2025 tax-year returns and 2026 quarterly returns, as well as future periods. Eligible return series include Forms 1040, 1065 and 1120, along with several payroll tax returns.

For taxpayers who meet the prior compliance requirements, AEP can prevent specified failure-to-file, failure-to-pay and failure-to-deposit penalties from being assessed.

The IRS designed the program to replace its longstanding First Time Abate program. Instead of receiving a penalty and then asking the IRS to remove it, qualifying taxpayers receive relief automatically.

But that does not mean every penalty connected to an eligible tax return disappears.

International information reporting is a major exception.

02Forms 5471 and 5472 have their own penalties

Form 5471 is required in a number of situations involving U.S. persons and foreign corporations.

For failures subject to Section 6038, the initial penalty is generally $10,000 for each foreign corporation for each annual accounting period. Additional penalties can apply if the failure continues after IRS notice. Different Form 5471 filing obligations can also fall under other penalty provisions.

Form 5472 commonly applies when a U.S. corporation is at least 25% foreign owned and has reportable transactions with a related party. It also applies to certain foreign-owned U.S. disregarded entities.

A Form 5472 that is late, missing, or substantially incomplete can trigger an initial $25,000 penalty. Additional penalties can apply if the failure continues after IRS notice.

These are separate international information-reporting obligations. AEP does not make Forms 5471 or 5472 eligible for automatic relief.

03First Time Abate had an international wrinkle

Forms 5471 and 5472 were not ordinary standalone First Time Abate returns.

However, IRS procedures have allowed certain systemically assessed international penalties to receive FTA-based relief in some circumstances based on the treatment and compliance history of the related Form 1120 or Form 1065. The IRS's current procedures still contain those rules for both Forms 5471 and 5472.

That did not mean every first-time Form 5471 or Form 5472 penalty could simply be waived.

But for some taxpayers, there was an administrative path to relief that did not depend entirely on proving reasonable cause.

Now AEP is replacing FTA while expressly excluding dependent information reporting.

That creates a question the IRS has not yet fully resolved in its published international procedures.

04Your Form 1120 may get relief while Form 5472 does not

Consider a U.S. C corporation with a foreign shareholder that is required to file Form 5472.

The company has a strong filing history but files its 2026 Form 1120 and required Form 5472 late in 2027.

The ordinary Form 1120 late-filing penalty may qualify for AEP.

The Form 5472 obligation does not.

So receiving automatic relief on the main corporate return should not be interpreted as relief from the $25,000 Form 5472 penalty.

The same problem can arise when a U.S. startup owns a foreign corporation and misses a required Form 5471.

05Foreign-owned LLCs should pay particular attention

This issue is especially important for foreign founders with U.S. single-member LLCs.

A foreign-owned U.S. disregarded entity can have no U.S. income tax liability and still have a Form 5472 filing requirement. When required, the entity files Form 5472 with a pro forma Form 1120, even though it otherwise does not have a Form 1120 income tax return filing obligation.

The filing can also be triggered by transactions founders do not necessarily think of as revenue or ordinary business activity.

So “the company had no income” does not necessarily mean there was nothing to file.

And if a required Form 5472 is missed, the fact that there was little or no U.S. tax due does not eliminate the penalty.

06The consequences may go beyond the penalty

Missing certain international information can also affect the statute of limitations.

Section 6501(c)(8) can keep the assessment period open until three years after the required information is eventually furnished. The rule can potentially affect the entire underlying return, although if the failure was due to reasonable cause and not willful neglect, the extended period is generally limited to items related to the missing information.

That gives founders another reason not to treat international forms as minor attachments to the tax return.

07If the filing is already late, the answer becomes fact-specific

AEP does not eliminate other potential penalty-relief provisions, including reasonable cause where available.

But once a Form 5471 or Form 5472 is already late, there is no universal answer to whether the penalty can be removed.

The analysis can depend on what was filed, how the penalty was assessed, the company's prior filing history, why the filing was late, when the omission was corrected, and whether the IRS has already issued a notice.

Those facts can materially change the available response.

That is also why founders should be careful about assuming that a first missed international filing will automatically be forgiven simply because the company otherwise has a good compliance record.

08The takeaway

The IRS's new Automatic Exemption from Penalty is a meaningful improvement for many taxpayers.

But automatic relief for the main tax return does not mean automatic relief for every international filing attached to it.

Forms 5471 and 5472 are not AEP-eligible. At the same time, existing IRS procedures still reference FTA-based relief for some systemically assessed international penalties, creating an unresolved transition as AEP replaces First Time Abate.

For founders with foreign shareholders, foreign subsidiaries, or foreign-owned U.S. LLCs, the practical question is no longer simply whether AEP applies.

It is what relief, if any, is available for the international filing based on the company's particular facts.

If a Form 5471 or Form 5472 is already late, or the company has received an IRS penalty notice, it is worth reviewing those facts before deciding how to respond.

This article is general information, not tax or legal advice. The rules are fact-specific, change over time, and depend on details unique to your company. Talk to us about how they apply to your situation.